SECURE Act Prompts New Look at Survivorship Life Products

01/31/2020

The passing
of the Setting Every Community Up for Retirement Enhancement (SECURE) Act
provides a phenomenal opportunity for you to revisit planning techniques and
solutions that you may not have looked at in a while.

A New Use
for a Traditional Planning Technique

The SECURE
Act was established to encourage more Americans to save for retirement. Unfortunately,
in an effort to raise future tax revenue it also eradicated an established
estate planning tool known as the “stretch” IRA. This
provision requires non-spousal beneficiaries to draw down inherited IRA funds
within a 10-year window. The result is a substantially higher income tax.

By
introducing your clients to a concept called IRA Max in combination with a survivorship life insurance policy (SUL), you can
show them that by redirecting a portion of their RMDs they will still be able
to leave a legacy consistent with their intentions. Upon the death of the
second spouse, this type of policy triggers a tax-free death benefit payable to
heirs.

The following
is a scenario that we were recently asked to review. A husband and wife, ages
70 and 68, respectively, are committed to leaving their heirs an inheritance –
but not at the cost of their lifestyle.

Case Considerations:

The Details:The husband’s qualified plan balance is currently
valued at $1,300,000 with a projected 6% growth rate.

Husband’s RMD at age
72 will be approximately $53,000

Client and
Beneficiary Tax Rates are both projected to be 35%

2nd
Spouse is projected to pass away at age 90

Remaining
account balance will generate an income tax bill for the ultimate beneficiaries
of $509,520, significantly diminishing their inheritance over time.

The
Solution:

This client
couple decides to leverage a portion of the husband’s RMD to purchase a survivorship life insurance policy at a cost of
$9,075* annually to:

Create an asset
replacement device,

Eliminate the
impact of the income tax, and

Restore the
inheritance to the full value intended for their heirs.

Let’s Collaborate

New legislation like the SECURE Act makes advanced planning
more critical than ever before. We believe that in your book of business you
have clients similar to the ones in our example and these same solutions exist
for them, as well.

As a collaborative insurance partner, Belman Klein Associates strives to identify new ways of implementing strategies using tried-and-true products. Together we can be proactive when underwriting and pricing are more favorable. By revisiting survivorship policies, you can help your clients plan for newly created taxation brought on by the SECURE Act and to pave the way for a sound financial legacy.

This is Part
Two in an ongoing series of communications to guide you through the
opportunities presented by the SECURE Act. Stay tuned for our next piece on restoring
flexibility to one’s legacy using life insurance.

*
John Hancock’s Protection SUL run 1/30/2020 solving for the level premium on a
lifetime projection for MD clients.

In
some instances, a Tax Advisor and/or Attorney should also be contacted for
counsel. Although the information contained here is presented in good faith, it
is general in nature may require additional consideration of other matters.
This report is for informational purposes only.